Monday, November 9, 2015

The Impact of Public Policy on Regional Inequality

In his cover story for the current issue of the Washington Monthly titled Boom and Bust, Phillip Longman makes the point that when we talk about income inequality, the discussion is often about individuals and classes. We rarely scrutinize how it is also a geographic issue rooted in regional inequality.

Longman chronicles the decline in regional inequality in this country starting in the 1860's. The efforts towards that equalization were not simply about creating a "New South" after the devastation of the Civil War. They also had an effect on the Midwest and Mountain West. But beginning in the 1970's and 1980's, that trend was reversed and regional inequality began to grow. What accounts for that?

Many people point to the decline of the "rust belt" as the cause. Others point to the fact that the creative class is attracted to living in areas with upscale amenities. Finally, some suggest that these changes are due to the fact that innovative people want to be around other innovators.

What Longman zeros in on though, is the impact that public policy has had in creating regional inequality. Going all the way back to our founding documents, we see a concern about regional dominance being mitigated by the design of representation in the Senate, which was an attempt to balance the power of densely and sparsely populated states.

But spanning the passage of the Sherman Antitrust Act of 1890 through President Woodrow Wilson establishment of the regionally-based banks of the Federal Reserve and FDR's investment in regional infrastructure projects, we see a long history of public policy tied to efforts to ensure that the benefits of commerce were spread equally across the country.

An example that specifically highlights the changes we've seen in this type of public policy more recently is a series of legislation from the late 1930's starting with the Robinson-Patman Act. Here's how Longman describes them:

Sometimes referred to by its supporters as “the Magna Carta of Small Business,” Robinson-Patman prevented the formation of chain stores even remotely approaching the scale and power of today’s Walmart or Amazon by cracking down on such practices as selling items below cost (a practice known as “loss leading”). The legislation also prohibited the chains from using their market power to extract price concessions from their suppliers. Similarly, the Miller-Tydings Act, enacted by Congress in 1937, put a floor on retail discounting, thereby ensuring that large chains headquartered in distant cities didn’t come to dominate the economies of local communities. This did not prevent innovation in retailing, such as the emergence of brand-spanking-new supermarkets to replace small-scale butcher shops and green grocers. But into the 1960s, these and similar laws would ensure that no supermarket chain would control more than about 7 percent of any local market.

All of those efforts started to crumble in the late 1970's beginning with policies of the Carter administration to combat runaway inflation. But it was President Reagan who severed the connection between antitrust efforts and their previous focus on regional economic development.

Another turning point came in 1982, when President Ronald Reagan’s Justice Department adopted new guidelines for antitrust prosecutions. Largely informed by the work of Robert Bork, then a Yale law professor who had served as solicitor general under Richard Nixon, these guidelines explicitly ruled out any consideration of social cost, regional equity, or local control in deciding whether to block mergers or prosecute monopolies. Instead, the only criteria that could trigger antitrust enforcement would be either proven instances of collusion or combinations that would immediately bring higher prices to consumers.

A lot of the talk about income inequality today tends to focus not only on individuals and classes, but on the tremendous wealth that is currently being accumulated by the financial industry. In this article, Longman chronicles how that happened. But what he adds to the conversation is a broadening of the discussion beyond that to include how our public policies have abandoned a rich tradition of protecting small businesses and local communities in areas such as transportation, technology, and retail. In doing so, he provides us with a much clearer look at our past that could inform the possibilities for the future.